Understanding User Retention

I’ve struggled for years to find the magic bullet that will make retention optimization painless and I’ve come to realise that if you change the way you look at retention, breaking it down into multiple stages, it becomes a much less scary beast.

So if you’re ready to turn your scary monster into a cute little kitten, something that even the most non-technical business owner can pet, stick around, because this one’s for you.

We’re going to be talking about weekly retention rates, but it’s worth remembering that these principles apply just the same to daily, monthly or annual reports.

Before we get into that though, it’s important to establish, what figures you’re reporting on.

Specifically, are you looking at the retention rate of new signups or new signups who have finished your onboarding process? It might sound like a tiny and insignificant detail but get it wrong and you run the risk of skewing your data.

Here’s why:

Scenario #1: Reporting retention on signups

Let’s say you want to find out how many of your visitors stick around one week after they decide to sign up. You already know that your product had 3000 new sign ups and your report shows a first week retention rate of 10%. That means that just 300 users come back to your product after the first week.

Scenario #2: Reporting retention for onboarded users

Instead you decide to look at how many onboarded users stick around after one week. You check the report again and, this time, see that out of the 3000 sign ups, 600 users successfully completed the onboarding process and 300 of them returned after the first week. That is a first week retention rate of 50%.

The way you view the data has a huge influence on your decision making process.

Look again at the data from scenario #1. With a first week retention rate of just 10%, the obvious solution would be to create a campaign to increase first week retention. Some users might return to the app but if this is you and your company, count yourself lucky if you increase your retention rate to 12%!

What if you were in charge of the company from scenario #2? It would quickly become obvious that retention isn’t really the issue here. The real problem is getting people to finish the onboarding process. Users who finish onboarding during the first week have a high retention rate, so the most obvious solution would be to start an onboarding optimization campaign (you can use data from your InnerTrends dashboard.)

This could increase your number of onboarded users from 600 to 900 or even 1200 which in turn would mean that anywhere between 450 to 600 users will return to the app every week. If we then went back to the reporting method in scenario 1 and reported retention to signups, the rate has increased to 15-20%.

User onboarding is critical, but it’s only one piece of the pie

When a user begins to onboard your product, he is looking to fulfill and satisfy the promises and expectations the landing page and ads have made to him. He will try to test your product and validate those promises.

Once he finishes the onboarding process he is either satisfied or dissatisfied by the way the app solved his problem. The onboarding experience itself is less relevant in influencing his decision to come back, compared with how often the user needs to solve his problem, and how important the problem was for him to begin with.

Here’s what serial entrepreneur turned VC David Skok had to say when we asked him about customer retention:

“One of the strongest indications of whether you will retain your customer will be the score indicating how happy they were with the product at the end of your on-boarding process. The second crucial indicator that we have seen is that if your executive sponsor leaves the company, you are at much higher risk of churn. To de-risk that, either make sure you have broader executive sponsorship, or find a new champion fast.” – David Skok, Serial entrepreneur turned VC @MatrixPartners

Onboarding is crucial because if the user doesn’t manage to validate the expectations set by the landing page, he won’t be able to create a bond, and there’s no reason for him to return to the product ever again.

But, implementing a good onboarding strategy doesn’t mean that he’ll keep returning forever. The app must help the user build a habit if he is to return on a regular basis.

Having established that reporting user retention based on the onboarding rate will give you a better overall picture, it’s now time to begin the actual process of retention optimization.

In preparation, we chatted with Internet entrepreneur and SaaS investor Christoph Janz about which metric to focus our efforts on. Specifically, we wanted to know if he agreed with us that first week retention is the metric with the highest influence on optimizing overall retention (and therefore a great place to start.)

“I agree with that statement, but I would go a step further. Many companies find that retention within the first days and even activity within the first hours correlates very highly with conversion and retention.

Why? People don’t have a large attention span and are bombarded with information, products and ads all day long. That’s why „time to wow“ is critical!” – Christoph Janz, Internet entrepreneur, SaaS investor, partner at @pointninecap

Learning how to report retention the correctly is the first step towards victory. Once you have the right numbers in front of you, the road ahead will be clearer and you can move on to the next step and start optimizing user retention.